Oil Prices: Will Growing Non-OPEC Supplies Keep Crude in Check?

By Spencer Swartz

Everybody’s been looking at oil demand, but is the real story in oil supply?

The International Energy Agency just published its latest monthly oil market report. For the fourth time in as many months, it has upped its forecast for 2009 oil production by all those countries that aren’t part of OPEC.

Non-OPEC supply fell about 300,000 barrels a day last year, but the IEA now expects it to increase by about 400,000 barrels this year. Since January, the Paris-based agency has upped its non-OPEC forecast by 940,000 barrels of oil a day. Russia alone accounts for 360,000 of that increase with new fields in Western Siberia entering service.

That could be a sign that marginal producers, aided by higher crude prices and falling production costs, are switching on the taps at wellheads previously shut-in because of poor economics.

Oil production outside OPEC is the big wild card, since the oil cartel has shown that it can ramp production up or down more or less at will, and has gobs of spare production capacity. But the Mexicos, Russias, and Brazils of the world have been a bigger question mark.

Indeed, the IEA might be overly optimistic. Many non-OPEC countries, including Norway, the U.K., and Mexico, are watching oil production steadily decline as oil fields mature.

That has other analysts, like the folks at Sanford Bernstein, a little more gloomy. They expect non-OPEC production this year to total 49.57 million barrels a day—or 1.43 million barrels less than the IEA estimates. Next year looks even worse, the analysts say, with non-OPEC production falling more than 1 million barrels to 48.46 million barrels per day.

Those different views of oil supply could make all the difference in the world to oil prices next year, because demand is starting to recover already, most especially in China.

If non-OPEC production really does keep pace, then oil prices could just move sideways. But if non-OPEC countries drop the ball, then a return to triple-digit oil might not be crazy talk.

UPDATE: Not that there’s a supply crunch just yet–not in the U.S. anyway. Weekly crude-oil inventories rose about 2.5 million barrels last week, during the heart of summer driving season.

Comments (5 of 6)

As long as Motiva Industries is allowed to import 1 million bopd into the US, the energy jobs in US will continue to drop. The oil imported is not tariffed to allow American firms to compete. The shale oil fields in the US have proven reserves of well over 2 trillion boe. The Kern river field has been using steam flooding for decades and is one of the most producing fields in US. It's all economics, if we get cheap oil from the very people who want to kill us, we will most definitely suffer as a country in the short term.

9:28 am August 13, 2009

Petroleum Engineer wrote :

veritas:

Agreed. Sadly.

1:05 am August 13, 2009

veritas wrote :

China has made oil deals with Brazil, Ecuador, Russia, and now is talking in Argentina for another. The US has hostile relations with Iraq, Iran and Venezuela, all oil rich states. The US assisted the Georgia Republic, the site of important oil pipelines from the Caspian Sea, against Russia. The Oil Resource Wars have already begun, so, the short answer to this blog's title is: No.

10:23 pm August 12, 2009

Benny BNDC wrote :

Petroleum Engineer: At least you read my comments. And I yours. I can't believe this is a WSJ blog. There is more comments on some blog about strudel written in Miami by a retired grandmother.
We will see how oil markets play out--I contend the actions of man dwarf geology. There is gobs of oil, just in the wrong places--in thug states. Even so, the long history of commerce is that if you don't keep your service or good priced well and reliable, you will lose the market.
Man is incredibly clever, and innovation incredibly sped up from previous epochs. Right now, there must be several dozen teams of engineers and scientists, globally, working on lithium batteries. I suspect we are but one iteration or two from bona fide competitive batteries. The first-gen is pretty good, though not quite there.
Sheesh, We could see turbine-PHEVs that run on pure ethanol. 120 miles on the battery, and another 80 on the motor, and oil imports go to zero. CNG cars increase also--that's a global reality already.
Sure, it will take 20 years to get there--but already oil demand is fading. China is locking up resources, as they have the money. Besides, China has seen what happens to investments in US real estate or companies. Japan tried that and busted. The Arabs tried that and busted.
Actually, I think we have a 20-year global economic boom in front of us--and we would still be booming except for an incredibly feeble US financial system. If we create a sturdy financial system free of too-powerful systemic risks, glory road ahead.
Back to China: Do you think the foreign policy of any particular nation is always right or smart? China is also pushing PHEVs and electric bikes. Does that mean the future is necessarily one with PHEVs?
These are interesting times.

9:07 pm August 12, 2009

Petroleum Engineer wrote :

It is Mr. Cole that keeps missing the real story. There is a very good reason why China is BOTH spending heavily on alternative energy projects AND aggressively buying oil reseves all around the globe.

None of the alternative fuels will come on quick enough, with enough scale, to keep the US from pain. I wish this were not so.

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